U.S. homeownership rate lowest since mid-1990s

ConorDougherty

The U.S. homeownership rate hit its lowest level since the mid-1990s, according to a Census release that showed that despite two years of recovery in the housing market there are still fewer homeowners than there were before the recession.

But the data also suggest that more young people are moving out of their parents' home and into rentals--a positive first step toward an eventual recovery in the share of households that own their home.

Some 64.8% of American families--about 74.4 million households--owned the homes they lived in during the first quarter of this year, down from 65.2% at the end of 2013, according to the U.S. Census Bureau. That was the lowest level since 1995 and is a significant drop from 2006, when a peak of 76.5 million households, or 68.9%, were owner-occupied.

The reasons behind the steady decline in homeownership are familiar: As the housing bubble burst, millions of Americans lost their homes to foreclosure as prices fell and exotic mortgages took their toll--triggering a global recession that pushed the unemployment rate into double digits. The loss of jobs led to a second wave of foreclosures that further reduced homeownership.

While foreclosures are continuing to drive families from their homes--albeit at a slower rate than in the past--some economists believe quirks in the data may also be giving an imperfect picture of the homeownership rate.

Specifically, the homeownership rate may be depressed by the rising number of young people leaving their parents' home and renting their own apartments. The homeownership rate measures the share of U.S. households that own their home, but it doesn't capture everyone under that roof. For instance, a 23-year-old college graduate that lives with his or her parents while searching for a job is neither a renter or a homeowner, and their situation isn't reflected in the homeownership rate.

That changes the moment a child gets a job and leaves home to rent their first apartment. At that point they are a renter household, which pushes up the renter rate and drags down the homeownership rate.

"The homeownership rate alone is hiding some of the housing recovery's progress," said Jed Kolko, chief economist at Trulia, a real-estate site.

That's particularly true now, when there is growing evidence that the thaw in the job market is prompting many young people to form new rental households, an important first step on the road toward homeownership.

In March, employment among people ages 25 to 34 reached 75.9%, which was close to a five year-high and up from 75.4% a year ago.

That group is a crucial piece of the nation's demand for new homes and apartments, and their ability to find work pretty much dictates where they live. One out of every five 25- to 34-year-olds without a job lives with their parents, versus about one in eight that is employed, according to an analysis of Census data by Mr. Kolko.

And, indeed, the improving job market for young people is one reason why there has been a boom in apartment construction and rents. Last year developers started construction on a little less than one million new housing units, and one in every three of them was an apartment built for rent. Rental rates, meantime, have risen 13% since 2009, according to Reis Inc.

With rents rising, developers are building high-rise rental towers at a rate not seen in decades, and renovating old office buildings into residential quarters.

While some of these renters will one day become homeowners, others won't. Many new renters are leaving college with mounds of student debt, making it harder to save up for a down payment. And while mortgage credit is thawing, it is still relatively tight.

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